The Tribune

By Carlo Alberto De Casa

ActivTrades chief analyst

www.activtrades.bs

The spread of coronavirus and the growing realisation about the impact it will have on the global economy triggered one of the most spectacular U-turns in the history of stock markets. In the middle of February the S&P 500, Nasdaq and other indices were reaching new historical highs, just one month later they have dived by more than 20 percent and in the process brought an end to the longest bull market ever seen. In just a few weeks the scenario has changed dramatically and stocks are now in a bear market.

The virus, which luckily is still well contained in The Bahamas with very few cases, has killed 10,000 people globally, while more than 200,000 are reported as infected with the numbers increasing daily. The main question now is how long will the virus continue to spread? Will the lockdown of Europe prove enough to stop the spread and what will happen in the US in the next few weeks? Moreover, what is going to be the impact on the economy and which companies will be most affected?

Markets are carefully looking to the contagion figures as a decline would be the first positive signal. Of course, only a clear solution – such as a vaccination or a treatment – can put a quick end to the sell-off witnessed on these turbulent markets, in which the actions of central banks are not seeming to be enough, at least in the short term.

In the last few weeks we have seen a sharp fall of shares in pretty much every sector. Airlines are one of the worst hit, as investors are seeing reducing numbers of passengers for at least two quarters. Restaurant chains and the banking and energy sectors are also suffering badly.

The scenario is particularly negative for companies working in the oil sector, as the price war started two weeks ago between Saudi Arabia and Russia sparked a collapse of the oil price to levels not seen in over 15 years. West Texas Intermediate, the US benchmark for crude oil, has fallen by over 40 percent in the last few days, plummeting from $45 to $25.

How long will this crisis last? According to a Goldman Sachs forecast, indices will continue to fall for another few months, before a solid recovery in the final part of 2020. In other words, this collapse could be temporary and the global economy (and with-it companies’ revenues) could start to breathe again by the summer or at least by the end of the year.

Does this scenario seem realistic, or it is too optimistic? For the time being, we can analyse the S&P, which has lost almost one third of its value in falling from 3,400 points to 2,300. The US’ main index is now approaching an area where there will be plenty of support levels, starting with 2,350 and then following with the key levels of 2,200 and 2,130. These levels still seem relatively far away, but with such huge volatility, markets are moving so fast that nothing seems impossible.